The retail brokerage market is experiencing a resurgence. Big box stores are seeing higher occupancy. Retailers are looking to maximize sales per square foot. Online shopping may be widely used, but outlook for investment in retail real estate remains promising with high demand for retail goods and services shopping space.
According to the National Real Estate Investor, “38,000 new storefronts will open this year alone, with growing retail segments in the grocery, fitness/health/spa, organic, automotive, pet supply, discount, bank, wireless and ethnic categories, among others.”
HIGH GROWTH SEGMENTS
Health and fitness clubs, fast-casual dining and grocery chains are leading the charge for retail real estate. Health and fitness clubs, such as LA Fitness or 24-Hour Fitness, offer convenient, well-equipped workout spaces at about 15,000 to 20,000 square feet. Frozen yogurt chains, Noodles & Co., and Panda Express franchises keep multiplying because of the high profit margin and minimal operational and employee costs. Grocers, such as Aldi and Safeway, are changing the landscape of typical grocery stores, with smaller space requirements and multi-level layout abilities.
BIG BOX STORES ARE BEING FILLED
Over the past few years bankruptcies left vacancies in storefronts, such as Circuit City, Borders, and Linens N’ Things. There was a significant amount of medium and large size retail boxes that needed to be filled, but that number has been reduced in the past 12 months.
As grocers and retailers are restructuring and moving locations, they are filling the void where these big box stores used to be vacant. These stores goals are to maximize sales per square foot, even shifting some of their merchandise to online sale only to make room for smaller, more efficient spaces. Staples and Best Buy are leading examples of this shift. Many of these retailers are also looking to more urban spaces, where foot traffic is at an all time high.
CLOSING THE DEAL
The market may be recovering, but retail tenants are demanding leases on their terms. Retailers are more frequently asking for tenant improvement allowances, which fuel expansion at the expense of the landlord instead of using their own capital. GlobeSt.com cites occupant demand for, “stronger co-tenancy language, early termination rights, and more restrictive exclusives to protect their core business.”
Moving forward both real estate brokers and retail clients can work together to meet the needs of both parties and fuel growth in this segment. Talk to Intelica about opportunities to grow through retail market real estate investments.